Woodrow Wilson established the Federal Reserve Bank (the Fed) in 1913 when he signed the Federal Reserve Act. The Fed conducts the United States’ monetary policy, regulates and supervises banks and many financial institutions, and maintains the stability of the economic systems in the country. It also plays a significant role in payments systems.
The Fed also provides a wide range of analytic, data, and educational content, drawing from its central role in financial functions.
The recently published 2018 Diary of Consumer Payment Choice, published in December 2019, presents a study, the fifth in a series, which surveys consumers on their preference for payment instruments in their daily life.
One finding had to do with the number of transactions an average household would have monthly and then illustrates which financial instrument settled the sale. Cash, for instance, accounted for 31.6% of transactions for purchases. Debit cards held a 31.2% share, with credit cards close behind at 27.5% then check at 2.3% and electronic payment form at 1.8%
There is a lot of data behind those distributions, such as the number of large versus small transactions, and the demographic of the user, but for now, let’s work with the data.
In my household, we are far off from the numbers. Cash usage would be shallow at no more than 3%, probably mostly for tips and newspaper transactions under $5.00. For debit, the number would likely be no more than 7%, while credit card would be 85% because I generate every reward point possible. My average family cashback is more than 2% of all consumer spending, skewed by rewards-rich cards like American Express Blue Preferred, Chase Freedom, and Discover It.
Checks would be meager, maybe 2% for family gifts not sent via PayPal. The rest would fall into the electronic category, which would be about 3%.
The Fed’s numbers are the Fed’s numbers, so I would use them in a report or industry estimate. If you are reading this, it shows you have an interest in payments, so your numbers will likely skew further than the Fed’s forecasts for cash and checks.
Try the same exercise on your personal household experience. Use less cash? Prefer Debit over Credit, or vice versa because of the points?
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
